Evidence of meeting #146 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was fuel.
A video is available from Parliament.
Liberal
The Chair Liberal Wayne Easter
I call the meeting to order. I understand that we'll be interrupted by bells. We're here continuing our study on the budget implementation act, Bill C-74.
With us to give their comments on part 3 of the act, amendments to the Excise Act, cannabis taxation, is Mr. Coulombe, who is Director, Sales Tax Division; Mr. Mercille, who is the Director General, Sales Tax Division; and Mr. Baddeley, Policy Analyst.
The floor is yours, Mr. Coulombe.
Gervais Coulombe Director, Sales Tax Division, Tax Policy Branch, Department of Finance
Thank you, Mr. Chair.
Part 3, which covers clauses 68 to 119, implements a new federal excise duty framework for cannabis products, a measure that was proposed in the February 27, 2018, budget and detailed in the supplementary information on tax measures, on page 40.
The proposal builds upon the framework that was released for consultation by the government in November of last year, and reflects the revenue-sharing agreement that was agreed to in principle at the finance minister's meeting in December of last year as well.
The duty, which will be introduced as part of the Excise Tax Act, 2001, will generally apply to all products available for legal purchase, which at the outset of legalization will include fresh and dried cannabis, cannabis oils, and seeds and seedlings for home cultivation. Cannabis cultivators and manufacturers will be required to obtain a cannabis licence from the Canada Revenue Agency and remit the excise duty, where applicable.
Excise duties will be imposed on federally licenced producers, the so-called cannabis licensees, at the higher of the flat rate applied on the quantity of cannabis contained in a final product and the percentage of the dutiable amount of the product as sold by the producer. The dutiable amount generally represents the portion of the producer's sale price that does not include the cannabis duties under the Excise Act, 2001.
The proposed excise duty framework will be applied as follows.
A flat rate duty will be imposed, at the time of packaging for final retail sale, on the quantity of cannabis flowering and non-flowering material, generally referred to as ''flower'' and ''trim'', respectively, as well as on cannabis seeds and seedlings in the case of home cultivation. The flat rate duty will be imposed on a dollar-per-gram basis, or dollar-per-seed or seedling basis in the case of seeds or seedlings. A lower rate per gram will be applied for trim as compared to flower.
A product will generally be considered to be packaged by a cannabis licensee when it is put in a container intended for sale to a final consumer at the retail level.
At the time of delivery of the cannabis product by the cannabis licensee who packaged it to a purchaser, for instance, a provincially authorized distributor, an ad valorem rate will also be imposed on the dutiable amount of the transaction. Cannabis licensees selling to purchasers would be liable to pay duty at the higher of the flat rate, the dollar per gram, or the ad valorem rate on the product, the 10% that I just mentioned. The applicable duty will only become payable at the time of delivery to a purchaser. The cannabis licencee who packages the cannabis product for final retail sale will be liable to pay the applicable excise duty.
All cannabis products that will be removed from the premises of a cannabis licensee to enter into the Canadian market for retail sale will be required to have an excise stamp. Excise stamps will have specified colours indicating the provincial or territorial market in which it is intended to be sold. It will be the responsibility of the cannabis licensee who packaged the cannabis product to determine and apply the appropriate excise stamp before its entry into the duty-paid Canadian market.
The excise duty framework will generally apply to cannabis products that contain THC, tetrahydrocannabinol, the primary psychoactive compound of cannabis. However, packaged products that contain concentrations of no more than 0.3% of THC, and consequently have little to no associated psychoactive effects, will generally not be subject to the excise duty under the proposed framework. Pharmaceutical products approved by Health Canada, with a drug identification number, a DIN, that are derived from cannabis and that can only be acquired through a prescription will also not be subject to the excise duty.
The federal government has reached an agreement with provincial and territorial governments on a coordinated cannabis taxation framework for the initial two years after legalization. In practice, the coordinated framework provides for the application of the federal excise duty, as well as an additional excise duty, in respect of provinces and territories.
This part also amends the goods and services harmonized sales tax, the GST/HST, the basic grocery rules of the Excise Tax Act, to ensure that any sales of cannabis products that would otherwise be considered basic groceries are subject to the GST/HST, in the same way as sales of other types of cannabis products.
In addition, relieving rules for various agricultural products will be changed to ensure that sales of cannabis products, including seeds and seedlings, will not be relieved under these rules.
The measure will generally come into effect when cannabis for non-medical purposes becomes available for retail sale. That means that the measure is contingent upon the passing by Parliament of Bill C-45, which is currently in front of the Senate—Bill C-45 being the bill legalizing cannabis for non-medical purposes in Canada.
We are available for questions.
Thank you.
Liberal
The Chair Liberal Wayne Easter
Thank you.
We'll go to Mr. Sorbara first and then—
Go ahead, Mr. Julian.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thank you very much, Mr. Chair. Welcome, once again. We are pleased to see you here.
Witnesses have the opportunity to make two presentations, one on Part 3 of the bill and the other on Part 5. Since today's meeting may be interrupted, could they also make a presentation on Part 5? In that way, we would first have the information from the Department of Finance and then we could get to the questions and comments.
Liberal
The Chair Liberal Wayne Easter
Mr. Julian, having been down this road a few times, I find it works best to deal with one section at a time. Members do have the right to exhaust their questions. We're not going to keep to your five minutes. We'll go back and forth until you get your questions answered on the budget implementation act. That is what we try to do.
I think it's better for the department and for us if we stick to one part, complete that, and go to the next.
On the three budget implementation acts, we've tried several scenarios, and to be honest with you, that's the one that works best. We'll stick to all the questions on part 3 on this one. Then we'll deal with part 5 of the greenhouse gas pollution pricing act. If we think we have to revisit some of those points, we have done that in the past as well.
I think we'll complete our discussion on this one and then go to the other one. The officials will likely still be in the room. In fact, Mr. Coulombe is on both, so he can cross over on the two.
Mr. Poilievre.
Conservative
Pierre Poilievre Conservative Carleton, ON
I want to make sure I understand your plans. Clearly, we will discuss this part and then we will proceed to part 5. If any members have questions outstanding about part 5, then we will call the officials back for another meeting.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you, Mr. Chair.
Thank you very much for your explanation.
Can you quantify the excise tax and how that will work? Is that at the point of production, if I understand that correctly?
Director, Sales Tax Division, Tax Policy Branch, Department of Finance
That's correct.
Basically, the rules that currently apply for tobacco products have been used to inspire the new framework for cannabis products. Producers of cannabis products would be required to get a licence from the CRA, the Canada Revenue Agency, as well as a licence from Health Canada under the proposed cannabis legalization act. Those licensees will remit the excise duty to the federal government. That excise duty will be comprised of two components, a federal component and an additional provincial component, in respect of the amount going to the provinces as part of the agreements with them.
In the technical information provided in the budget, you will find most of these technical details on page 40. That's the tax measures supplementary information that was released aside from the budget plan.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Okay. My understanding is that, and you may or may not be able to comment on this, the agreement in place will put a cap on the revenues that come to the federal government for the first, I believe, two years of the excise tax in place.
Director, Sales Tax Division, Tax Policy Branch, Department of Finance
That's correct. For the first 24 months of legalization, federal revenues will be capped at $100 million. For instance, if you have in the first year, let's say, nine months of coverage, assuming a July 1 implementation date, we would be capped at $75 million federally, and any additional revenues from the 25-75 split would be provided to provincial and territorial partners.
Liberal
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thank you, Mr. Chair.
You spoke earlier of excise tax stamps that will be placed on cannabis product packages.
Does that apply to recreational use cannabis as well as medical use cannabis?
Director, Sales Tax Division, Tax Policy Branch, Department of Finance
The tax stamps will have to be placed on all cannabis products that are subject to the excise tax, whether those products are used for medical or non-medical purposes.
However, Budget 2018 does specify that products with a very low concentration of tetrahydrocannabinol, or THC, that is to say 0.3% at most, will not be subject to the excise tax. They will not be subject to the excise tax and will not be stamped. They are not covered by the regime.
However, cannabis that is smoked and used for medical purposes will be subject to the rules from the 2001 Excise Tax Act and will have to be packaged according to regulatory standards. They will also have to have a tax stamp.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thank you for that. This means that there is an excise tax paid on cannabis medication that is provided to Canadians following a prescription from their doctor. I have two questions. Could you confirm that there isn't any exemption? In other words, all of the taxes that apply to recreational cannabis actually equally apply to medical marijuana, medical cannabis.
Then secondly, the finance minister regularly does models. I'm sure you have some idea of what the projected percentage of marijuana that is used for medicinal purposes on prescription would be. What would be the cost if there was an exemption put into place for medical marijuana?
Director, Sales Tax Division, Tax Policy Branch, Department of Finance
In respect of your first question, again, the exemptions that are put in place in respect of the excise duties for the moment are in respect of low-THC products. The other products that may be used for recreational or medical purposes will be taxed equally. There is no special tax treatment for medical cannabis, except for low-THC products.
The government, though, has announced that it will be undertaking a drug review program with Health Canada to try to get quicker access for pharmaceutical products that are derived from cannabis. I should have mentioned that those pharmaceutical products—we currently have I think Sativex that is one of those, with a DIN number—are also excluded from the application of the excise duty.
Liberal
The Chair Liberal Wayne Easter
Just to come back to your remarks, Peter, they should be in your binder.
This is what was said in your remarks, Mr. Coulombe: “Pharmaceutical products approved by Health Canada, with a drug identification number...that are derived from cannabis and that can only be acquired through a prescription will also not be subject to the excise duty.”
If it's a prescription, the way I read this, and it has a drug identification number from Health Canada, it will not have the excise tax. Is that correct?
Director, Sales Tax Division, Tax Policy Branch, Department of Finance
Yes. That's correct.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
That does not include certain types of medical marijuana.